After announcing last week revenue declines across multiple geographies as well as sluggish wholesale, retail and digital sales, the clog maker followed up with plans to shutter 158 doors.
“Over the past several months, as we continued to focus on removing unnecessary complexity from our business, we conducted a comprehensive review of our cost structure,” Crocs president Andrew Rees said during the firm’s conference call on March 1. “This led us to identify a series of actions to reduce our SG&A by $75 million to $85 million. The SG&A reductions fall into two main categories: 70 percent will come from planned store closure over the next two years, this will result in a net 25 percent reduction in our store count, bringing it down to approximately 400 stores by the end of 2018 from the 558 at the end of 2016.”
Rees said the balance of the SG&A reductions will be generated from efficiency gains. (The company also said last week that CEO Gregg Ribatt will step down from his post on June 1, and Rees, who served as president of Crocs since 2014, will be become both president and CEO.)
He added, “We are increasingly able to leverage costs through standardization and our global ERP system and from our organizational changes, giving rise to a more nimble and responsible organization.”
Crocs challenges undoubtedly come at a time when retail, in general, is under tremendous pressures and store closures, layoffs and even bankruptcy have become par for the course. (Wolverine World Wide Inc.-owned children’s footwear brand Stride Rite announced a series of store closures last year. Meanwhile, a number of retailers, including Macy’s, JCPenney and Sears have announced they would shutter multiple doors.)
Still, it’s been difficult to deny that many of the brand’s challenges are company-specific: Crocs has spent several years trying to turn around its business as consumer interest in the quirky lightweight clog dwindles.
“The growing athletic trend is making Crocs more of an afterthought for retail accounts, particularly outside of core markets,” Susquehanna Financial Group LLLP analyst Sam Poser wrote last week. “Additionally, despite having cut the SKU count by one-half since 2014, Crocs still appears to have too many marginal styles that don’t justify the additional cost/complexity. Today, bold transformative changes don’t appear to be contemplated in Crocs’ plans. Even if these large-scale changes were indeed planned, successful execution would prove difficult.”
In the fourth quarter, the brand narrowed its net losses from $73.9 million, to $44.5 million, or 60 cents per diluted share. But analysts expected losses to narrow to 35 cents per diluted share. Revenues also tumbled 10 percent, to $187.4 million in Q4, falling short of Wall Street’s bets for revenues of $189.4 million.